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UK Run-off Survey |
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Highs & Lows of RUN-OFF
KPMG, in association with ARC, has published the UK Run-off Survey - Life and Non-Life Insurance 2006, which reveals some surprising shifts in the market.
While the overall size of the life and non-life insurance markets has remained stable, the size of the capital tied up in run-off has increased appreciable to £14.5 billion in life (compared to £11.5 billion in 2004) and £4.8 billion in non-life (£4.0 billion in 2004), according to the UK Run-off Survey - Life and Non-Life Insurance 2006 produced by KPMG LLP (UK), and commissioned by The Association of Run-Off Companies Ltd (ARC).
LIFE
Changes in size of UK life run-off market
Policyholder
liabilities (£ billion) | 2001 | 2002 | 2003 | 2004 | 2005 |
| Active market |
804 |
717 |
769 |
837 |
980 |
| Run-off market |
75 |
107 |
124 |
135 |
136 |
| Total UK life market |
879 |
824 |
893 |
972 |
1,116 |
UK run-off market - life assurance
Figures show that the total policyholder liabilities of UK life assurers in run-off in 2005 were over £136 billion, an increase of £1 billion on the previous year and representing 12 percent of the total UK life market. The increase would have been larger but for a number of large transactions in 2005 which had the effect of moving portfolios of business previously included in closed life assurance to active life assurers.
More than £14.5 billion of capital is now tied up in UK life run-off business, an increase of some £3 billion in 2004. Darryl Ashbourne, director in the KPMG Restructuring Insurance Solutions practice, said, “Policyholders liabilities in run-off increased from £75 billion to £136 billion in the period 2001 to 2005, an astounding 81 percent. Capital tied up in life run-off in the period of 2001 to 2005 has increased significantly, from £4.2 billion to £14.5 billion - almost three and a half times.”
UK run-off market - non-life insurance
In the UK non-life run-off market, total liabilities at the end of 2005 (including Lloyd's syndicates) are estimated at £38.2 billion, a reduction of £0.2 billion on 2004 figures. This represents 19 percent of the non-life market compared to 23 percent in 2004. However, funds tied up in run-off increased by 20 percent from £4.0 billion to £4.8 billion. This market is substantial and the drive to more actively manage these books of business is evidenced by the continuing use of solvent schemes to achieve finality as well as growth in the use of Part VII transfers.
In relation to solvent schemes of arrangement, Tony McMahon, partner in the KPMG Restructuring Insurance Solutions practice, commented, “Even though British Aviation Insurance Company (BAIC) failed to obtain court sanction for its solvent scheme last year, schemes continue to grow in number, size and complexity. Important lessons have been learned from the BAIC decision and are now being
NON-LIFE
Changes in size of UK non-life run-off market
Total liabilities
(£ billion) | 2002 | 2003 | 2004 | 2005 |
| Lloyd's (1993 onwards) |
5.4 |
7.7 |
7.2 |
7.5 |
| Equitas (Lloyd's 1992 and prior) |
7.6 |
5.8 |
4.6 |
4.4 |
| Other solvent run-off |
13.4 |
15.9 |
16.0 |
15.9 |
| Insolvent run-off |
12.3 |
11.7 |
10.6 |
10.4 |
| Total |
38.7 |
41.1 |
38.4 |
38.2 |
SOURCE: A.M. BEST's STATEMENT FILE - NON-LIFE - UK, S & P THESYS - SYNTHESYS NON-LIFE, KPMG LLP(UK) 2006, LLOYD'S
“As ever, both the life and nonlife surveys give some fascinating insights into the run-off sector.”
Philip Grant, chairman, ARC
reflected in the approach taken to schemes. Recently the Willis Faber Underwriting Management (WFUM) pool schemes has also provided helpful guidance on certain aspects of best practice for solvent schemes. Solvent schemes are now a material feature of the non-life run-off market and those promoted but not effective before the end of 2005 account for some £500 million of liabilities.”
Steve Goodlud, a director in the KPMG restructuring Insurance Solutions practice, said, “For the first time, an analysis of Part VII transfers are included in the survey, and (like solvent schemes) their popularity has been increasing in recent years. There have been 34 such transfers for non-life portfolios since the procedure was introduced in 2001. The ability to include the reinsurance asset as part of the transfer has made them very attractive as a reorganisation tool.”
The survey, which includes Lloyd's business but excludes the UK business of companies from other EU countries; found the total liabilities of the Lloyd's syndicates' open years in run-off have reached £7.5 billion. This is now over £3 billion greater than Equitas, the vehicle established to deal with Lloyd's 1992 and prior run-off business.
Philip Grant, chairman of ARC concludes, “As ever, both the life and non-life surveys give some fascinating insights into the run-off sector. Of particular interest on the non-life side is how large Lloyd's post 1992 run-off has become. In the life sector, it seems that the efficiencies of scale upon which many of the sector's acquisitions have been predicated are indeed manifesting themselves, with administration costs showing a sharp reduction.”
The UK Life run-off survey 2006.pdf
The UK Non-life run-off survey 2006.pdf
Republished with permission of JTW News - The Worldwide Reinsurance News Digest - www.jtwnews.com
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